Another freight payment vendor in trouble

Monday, April 29, 2013

The automotive supplier division of the U.S. conglomerate Johnson Controls, Inc. (JCI) has filed a lawsuit in U.S. District Court against its long-time freight payment and audit vendor, TransVantage Solutions.
The lawsuit, filed April 8 in New Jersey, alleges that TransVantage had failed to make $17 million in payments to Johnson Control’s transportation providers, and the company had been systematically hiding its misuse of the funds it handled on Johnson Controls’ behalf.
Among the nine counts alleged in the suit against New Jersey-based TransVantage and its president Shirley Sooy are fraud, embezzlement, breach of fiduciary duty, negligence, and breach of contract. A phone message left for Sooy was not immediately returned, nor was an email request for comment left on TransVantage’s Website.
Johnson Controls’ automotive division has been a customer of TransVantage since the mid-1990s, with the relationship subsequently codified in a series of payment services agreements or broader master services agreements. The most recent agreement was effective from May 1, 2009 for two years, but the lawsuit said the two parties had “voluntarily continued to operate under the terms of the agreement as though it had not expired.”
“During the first quarter of 2013, JCI was unexpectedly contacted by certain of its logistics providers and informed that the providers would no longer provide services to JCI because JCI had failed to pay its invoices,” the lawsuit said. “JCI immediately contacted TransVantage and inquired as to the unpaid invoices. At that time, JCI learned that approximately $17 million of JCI’s funds had not been delivered to its logistics providers by TransVantage.
"JCI promptly took steps to transition its payment services away from TransVantage, and JCI hired Ernst & Young to examine TransVantage’s records to assist with the transition. During that on-site examination by Ernst & Young, Defendant Sooy admitted to several Ernst & Young employees that a multi-million dollar shortfall or ‘hole’ existed at TransVantage at the time JCI began utilizing TransVantage’s services. Sooy further stated that Defendants utilized funds provided by JCI (for the sole purpose of paying its freight providers) to fill the 'hole.' Sooy also admitted to the existence of the hole, and TransVantage’s efforts to fill the hole, during both a March 4, 2013 conversation with a JCI employee and during a March 28, 2013 meeting at TransVantage’s offices, in which several individuals – including JCI representatives – were in attendance.”
The lawsuit also alleges at the time JCI began doing business with TransVantage, the “hole” already existed and TransVantage failed to inform JCI of the deficit in its client fund account, choosing instead to use JCI’s first payments (which, at the time, totaled several million dollars per week) in an attempt to cover the “hole” and avoid discovery.
“These efforts to conceal were undertaken without JCI’s knowledge or consent and in direct contravention of both TransVantage’s representations and the express terms of the parties’ agreements,” the lawsuit said.
The suit further alleges TransVantage used Johnson Controls' funds to provide a loan of at least $1 million to a third party, while another $4 million of its funds were invested, and lost, in the stock market.
The lawsuit nearly coincides with a case of embezzlement at fellow freight payment vendor Trendset, in which an employee siphoned off customer funds intended to be paid to transportation and logistics providers. Trendset is now likely to file for bankruptcy after three customers filed petitions in federal bankruptcy court.
Check the May issue of American Shipper for much more on freight payment. - Eric Johnson